ObamaCare Rules Encourage Gaming the System


Imagine calling your State Farm agent when your house is on fire and asking to buy a homeowner’s policy. Or maybe trying to buy an auto policy with collision coverage after your son drives the family car through the garage door. Good luck with that!

But that’s exactly what’s happening with ObamaCare. The rules of The Affordable Care Act actually allow such gaming of the system. No wonder the costs of healthcare insurance premiums are going through the roof.

In order for insurance to be affordable with stable prices, insurers must be able to accurately calculate their costs so they can accurately price their policies. To do so they normally use years of experience with patient populations based upon age, health status, geographical location, tobacco and other substance usage, occupation, and other factors. They count on the predictability of illness through complex actuarial analysis.

But ObamaCare disrupts the normal process of insurers with mandates that throw out factors such as pre-existing medical conditions, diminish the impact of age, and even discourage purchasing healthcare coverage until after you are sick. Even more surprising, the ACA allows people to get twelve months of medical coverage for only nine months of premiums paid.

Grace-Marie Turner, writing in Forbes, says these issues were discussed in a recent hearing held by the House Energy & Commerce Health Subcommittee called “Advancing Patient Solutions for Lower Costs and Better Care.” She says witnesses were asked to examine the following issues:

  • Abuse of the grace period for health insurance payment
  • Lack of verification of qualifications for Special Enrollment Periods
  • Flawed age rating bands
  • Waste of taxpayer dollars on failed state exchanges


Abuse of the Grace Period

ObamaCare requires insurers to continue coverage 90 days after payment of the last premium. That means people can pay their premium for only nine months but still get twelve months of coverage. A national consumer survey by McKinsey and Company found that nearly a quarter of consumers stopped paying premiums in 2015 yet most repurchased an exchange plan in 2016 – many from the same plan.

Of course insurers must cover the cost of these “gamers of the system” by building the expense into the next year’s premiums. Therefore everyone pays more. State rules before ObamaCare usually had only a 30 day “grace period.”

Lack of Special Enrollment Verification

Special Enrollment Periods (SEPs) are designed to help people obtain health insurance coverage when life changes like divorce or job changes force new insurance coverage. But many people are abusing these periods and the exchanges are not verifying qualification. Thus people purchase health insurance only when they need medical care, then drop the coverage once they receive the needed treatment.

The actuarial consulting firm of Oliver Wyman found:

  • Claim costs in 2014 for people who enrolled in the SEPs were 24% higher in the first three months than for regular enrollees
  • In 2015, the difference increased to 41% for the first three months.
  • Individuals enrolling in SEPs were more than twice as likely to drop their coverage after short periods of time than annual enrollees.


Flawed Age Rating

Insurers know from years of experience that the average 64-year-old consumes six times as much health care, in dollar value, as the average 21-year-old. For that reason, premiums before ObamaCare reflected those increased costs. Premiums were priced on 5:1 or 6:1 ratios, depending on the state. Before passage of the ACA, 42 states allowed 5:1 age rating or more.

But ObamaCare mandates no more than 3:1 age rating. That means older, sicker patients pay less than the actual cost of their coverage while younger, healthier people pay more. Forbes opinion editor Avik Roy testified at the hearing, “If every customer remains in the insurance market, this has the net effect of increasing premiums for 21-year-olds by 75 percent, and reducing them for 64-year-olds by 13 percent.”

“However, if half of the 21-year-olds recognize this development as a bad deal for them, and drop out of the market, adverse selection ensures, driving up the average healthcare consumption per policy holder, thereby driving premiums up for everyone, including the 64-year-olds who were supposed to benefit from 3:1 age rating.”


Wasted Taxpayer Dollars on Failed State Exchanges

ObamaCare allowed states the choice of setting up their own healthcare exchanges or using the federal government exchange. Those states who chose to set up their own were awarded more than $5.5 billion in federal taxpayer dollars. Many of these exchanges have since failed.

Oregon and several other states have filed lawsuits against the information technology contractors that helped build their exchanges – money that state officials say they plan to keep if they win. But the money lost is federal taxpayers’ money. Furthermore, CMS officials have given misleading testimony stating that more than $200 million in grant money has been returned to the federal government. But CMS documents do not support this claim, showing only $21.5 million received from the 17 state exchanges.

Solutions Proposed

Rep. Bill Flores (R-TX) is sponsoring a bill to allow states to make their own rules regarding abuse of the grace period. Most would probably return to the “30 day grace period” to prevent gaming of the system.

Rep. Marsha Blackburn (R-TN) is sponsoring legislation to verify eligibility for the SEPs before allowing an individual to enroll in an exchange during these periods. This should encourage people to get covered and stay covered which would lower the costs for everyone.

Rep. Susan Brooks (R-IN) is sponsoring legislation to address the age-rating bands, starting in January 1, 2018. She would allow states to decide but if the issue is not addressed a 5:1 ratio would prevail. This would spread the cost over more ages, returning to the actuarial experience of the past that gave us stable rates.

House Energy & Commerce Health Subcommittee Chairman Joe Pitts (R-PA) summarized the situation well:

“More government bureaucracy, regulations, and spending never successfully reduce the price of health care. Yet that is exactly the premise of how health insurance is regulated today – with top down mandates that empower Washington and remove control over health care decisions from states, small businesses, families and individuals. This has to be change if we truly want bottom up solutions that provide better care at lower costs for patients.”

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